Online cigarette buyers targeted for taxes

Smokers face steep penalties for avoiding taxes by mail-order, Internet purchases

Posted: Friday, July 22, 2005

ANCHORAGE - The state has notified more than 600 Alaskans that they must pay the state taxes they skirted by buying tax-free cigarettes online.

Letters were posted this week telling smokers they can avoid steep penalties as long as they pay the tax. Alaska law requires the tax to be paid on all cigarettes, even those purchased by mail order, phone order or over the Internet.

As required by law, 10 online vendors provided names of customers to state tax officials in recent months, said Johanna Bales, head of the state Department of Revenue's tobacco tax unit.

The names of about 635 people were provided by a single Internet vendor, www.esmokes.com, and the state is still working through lists from other vendors, Bales said.

People who import untaxed cigarettes need a $25 license, and the fine for failure to have one is 100 percent of the taxes owed, plus up to another 25 percent for failing to file the taxes. A person shipping untaxed cigarettes through the mail can be fined another $5,000.

Under federal law, vendors are supposed to make monthly reports to states of the names and addresses of those who buy untaxed cigarettes. But many vendors ignore the law, Bales said. There are an estimated 1,500 tobacco sellers on the Internet, she said.

In March, the National Association of Attorneys General met with credit card companies about ways online tobacco retailers were operating illegally. The companies agreed to reject credit card sales by such vendors. The agreement also has the backing of the federal Bureau of Alcohol, Tobacco, Firearms and Explosives.

More vendors now are reporting names of customers, Bales said.

The last major crackdown by the state was in 2002, she said. Eighty-five percent of the people contacted paid up, she said.

The sales at issue on esmokes.com occurred between 2001 and 2004 and cost the state $420,000 in taxes, Bales said.

At $1 a pack, the state tax rate in effect then, that amounts to 420,000 packs of illegal cigarettes brought into Alaska. The state rate now is $1.60 a pack.



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